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Remy’s first-half earnings rise as Chinese demand cognac

As overall cognac sales have recovered from the 2008/09 downturn, discerning Chinese looking for an aspirational tipple are causing a surge in shipments of Remy Martin’s €2,500 Louis XIII cognac and other deluxe spirits.

Regis Duvignau/Reuters

French drinks group Rémy Cointreau SA reassured investors that Chinese consumers are still thirsty for cognac as it showed orders from wholesalers picked up after a slowdown in the second quarter.

The maker of Rémy Martin cognac and Cointreau liqueur stuck by its goal for a "substantial" rise in full-year earnings, although it forecast more moderate growth in the second half of 2012 because of Europe's uncertain economic climate.

Remy posted a forecast-beating 18-per-cent rise in underlying first-half operating profit, driven by demand for its premium cognac in China and the United States.

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"We are still very positive and seeing no signs that the Chinese consumer would be losing interest in cognac … We remain extremely confident on China," chief executive Jean-Marie Laborde told a news conference.

Slowing economic growth and China's crackdown on conspicuous consumption ahead of the political leadership change that just took place in Beijing – amid public anger over widening income inequality – had given rise to concern that the country's demand for luxury goods might be cooling.

Remy Cointreau added to these fears itself last month when it reported a sharp slowdown in second-quarter sales growth and said Asian wholesalers were holding back on new cognac orders after stocking up in the previous quarter.

Remy, however, had emphasized that demand for its very high-end cognac such as Louis XIII, which sells for €2,500 per bottle, largely escaped the slowdown.

Shares in the drinks group jumped nearly 8 per cent, lifted by the more positive tone on Chinese growth. CM-CIC analyst Francis Pretre said there had been signs of a "sharp recovery" in the gift market for high-end goods in China in recent weeks.

Austerity-hit Southern Europe however remains a tough spot, Rémy said.

"We think it's not going to improve in Europe except in eastern Europe and notably Russia," Mr. Laborde told journalists.

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Rémy, which has a market capitalization of €4.3-billion, competes with spirits makers France's Pernod Ricard SA and Britain's Diageo PLC.

Operating profit for the six months to Sept. 30 reached €141.5-million, beating the €128-million average estimate in a Thomson Reuters I/B/E/S poll of analysts.

Rémy Martin cognac, which makes the bulk of group sales and profit, achieved a 27.3-per-cent rise in operating profit.

Operating profit in the Liqueurs & Spirits division fell 24.9 per cent to €19.5-million, hit by higher marketing investment and falling demand for Metaxa in Greece.

Rémy, which recently bought single malt Scotch whisky distiller Bruichladdich for €72.8-million ($94.38-million U.S.), said net debt rose to €266-million from €114-million at the end of September 2011.

The purchase is aimed at tapping booming demand for premium whisky, notably in Asia, and could be followed by other acquisitions in that sector if Remy finds the right brands.

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Rémy plans to invest €5-€6-million to quadruple production at Bruichladdich, which stands at 50,000 cases, Mr. Laborde said.

The stock has gained 44 per cent so far this year, outperforming the Stoxx Europe 600 food and drinks sector index , which is up 20 per cent.

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